Correlation Between BII Railway and Qingling Motors

Can any of the company-specific risk be diversified away by investing in both BII Railway and Qingling Motors at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining BII Railway and Qingling Motors into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BII Railway Transportation and Qingling Motors Co, you can compare the effects of market volatilities on BII Railway and Qingling Motors and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in BII Railway with a short position of Qingling Motors. Check out your portfolio center. Please also check ongoing floating volatility patterns of BII Railway and Qingling Motors.

Diversification Opportunities for BII Railway and Qingling Motors

0.15

Correlation Coefficient

BII Railway  Qingling Motors

Average diversification

The 3 months correlation between BII and Qingling is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding BII Railway Transportation and Qingling Motors Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Qingling Motors and BII Railway is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on BII Railway Transportation are associated (or correlated) with Qingling Motors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Qingling Motors has no effect on the direction of BII Railway i.e., BII Railway and Qingling Motors go up and down completely randomly.

Pair Corralation between BII Railway and Qingling Motors

Assuming the 90 days horizon BII Railway Transportation is expected to under-perform the Qingling Motors. In addition to that, BII Railway is 1.04 times more volatile than Qingling Motors Co. It trades about -0.12 of its total potential returns per unit of risk. Qingling Motors Co is currently generating about -0.03 per unit of volatility. If you would invest  6.02  in Qingling Motors Co on October 27, 2024 and sell it today you would lose (0.06) from holding Qingling Motors Co or give up 1.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

BII Railway Transportation  vs.  Qingling Motors Co

BII Railway Transpor

Risk-Adjusted Performance

3 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BII Railway Transportation are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, BII Railway is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Qingling Motors

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Qingling Motors Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Qingling Motors is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with BII Railway and Qingling Motors

The main advantage of trading using opposite BII Railway and Qingling Motors positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BII Railway position performs unexpectedly, Qingling Motors can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Qingling Motors will offset losses from the drop in Qingling Motors' long position.

The idea behind BII Railway Transportation and Qingling Motors Co pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.